Uber Only Survives on the Backs of Low Paid Drivers

April 27, 2018

By Arturo Castañares / Publisher and CEO

After growing up with the warning to not hitch-hike or accept rides from strangers, it’s funny how quickly the world has accepted the concept of fetching a ride home or to work in the private car of a person we don’t know, but that’s the new paradigm in our rapidly changing techie world.

The sharing economy has brought us a bunch of new ways to shop of things: we can rent someone’s house for a night; we can get food delivered to our homes from just about any restaurant; we can get groceries and merchandize delivered within hours; and, yes, we can get a ride in a stranger’s private car with just a few thumb types on our phones.

The incredible growth of Uber as an accepted method of transport is astonishing. In less than ten years, Uber has grown from a local luxury sedan car service in San Francisco to the ubiquitous ride sharing app that connects hundreds of thousands of drivers with millions of riders each year, and pulls in over $7 billion in annual revenue.

Through several rounds of investments, Uber has raised more than $22 billion, and is now estimated to be valued at over $50 billion. Uber’s value has made its founders and early investors into multi-billionaires, including founder Travis Kalanick, who is now worth more than $6 billion.

The fact that Uber grows at over 90 percent year over year and has revenues of over $7.4 billion sounds like a successful company. They have been the darling of the tech investment world, and people throughout the U.S. and several other countries where Uber operates love the convenience of the service much more than traditional cabs.

But, unlike other highly-valued tech companies, Uber has never made a profit.

Last year, Uber lost over $4.5 billion on its $7.4 billion in revenue. Through its entire existence, Uber has burned through more than $10.7 billion in cash.

Uber has spent much of those billions of dollars on subsidies paid to drivers to supplement the fare price users pay, trying to make up for the below-market ride prices Uber charges users in order to disrupt the taxi and private sedan markets.

Most users don’t know or even care that investors have lost billions of dollars to fund the growth of Uber because users like the convenience of fetching a quick ride or, for a growing number of users, not having to own a car anymore because Uber serves as their principal means of transport in their fast-paced lives.

But, the real problem for our communities is that Uber is funding its rapid growth by underpaying drivers and leading a majority of its independent-contractor employees to end up earning less than the local minimum wage.

A study published last month by MIT’s Center for Energy and Environmental Policy Research found that the median profit of an Uber driver in the US is $8.55 per hour, lower than California’s $11.00 minimum wage.

The study found that most drivers didn’t even know how little they actually earned because many of their expenses incurred while driving for Uber go unnoticed until much later, including insurance costs, depreciation of their car, and repair and maintenance costs.

Of the drivers in the study, 54 percent earned less than the minimum wage, and 8 percent actually lost money by driving for Uber.

Its true that some drivers are young and only drive as a part-time second gig, but most Uber drivers are older adults that work full-time as low paid drivers.

Of the 750,000 Uber drivers in the US, more than 65 percent only drive for six months before quitting. For female Uber drivers, it’s a 76 percent turnover rate.

As a business strategy, Uber has decided not to have its own cars, but instead to shift the burden of investing in cars and the on-going maintenance costs on to individual drivers.

When Uber tried its own lease program to provide cars for drivers, it cost 18 times more than it expected, and quickly abandoned the program.

Now, Uber is trying to continue growing its market share by maintaining its artifically low fares in hopes of eventually going public.
So why should we care?

In San Diego, especially, where the cost of living is higher than average, underpaid jobs force more people below the poverty level, leading to more reliance on social services, inadequate access to health care, and lower percentages of home ownership, just to name a few.

Promoting low paid service jobs in a high-cost economy puts downward pressure on wages, depresses economic growth, and increases the financial stratification between the haves and the have-nots.

Tourism-dependent San Diego already struggles with the growth of low paid service jobs in hospitality, food service jobs, and low-skilled labor.

Unions and industry groups have been working to improve the living conditions for the thousands of service industry workers in our community, but the majority of new jobs in our region continue to be in the low-paying service sectors.

Disruptive technologies and services may make things more convenient for some, but they sometimes carry unseen costs that are eventually borne by the most vulnerable members of our communities.

We should consider the true impacts on our local economy every time we hail a ride-share car. We should remember that driver behind the wheel that gets us home safely may be working for just a few dollars an hour in a desperate attempt to survive in San Diego.

Maybe that cheap ride isn’t really as cheap as we all think after all.

Unfortunately, the stock market and venture capitalists don’t value companies on their true costs to society, just on their ability to make them money.